Business Advisory & Consulting Flashcards
7 cards from real ABA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Advisory & Consulting flashcards as text
A client's gross profit margin has declined from 42% to 34% over two years while revenue grew 15%. What is the most likely cause an advisor should investigate first?
Answer: Rising cost of goods sold outpacing revenue growth
Gross profit margin only reflects revenue minus COGS, so a declining margin despite revenue growth indicates COGS rising faster than sales prices.
When applying the Balanced Scorecard framework to a client, which perspective directly measures employee training and innovation capacity?
Answer: Learning and growth perspective
The learning and growth perspective addresses human capital, information capital, and organizational capital, including employee skills and innovation.
A manufacturer asks you to evaluate whether to make or buy a component. The relevant costs for the make option are $18/unit variable and $5/unit allocated fixed. The buy price is $22/unit. What is the correct advisory conclusion?
Answer: Make, because variable cost of $18 is less than the buy price of $22
In a make-or-buy decision, only relevant (avoidable) costs matter; since the $5 allocated fixed cost is unavoidable, the relevant make cost is $18, which is below the $22 buy price.
During a strategic planning engagement, a client asks about the difference between core competencies and competitive advantages. Which statement is most accurate?
Answer: A core competency becomes a competitive advantage only when customers value it and competitors cannot easily replicate it
A core competency (internal capability) translates into a sustainable competitive advantage only when it delivers customer value and is rare, inimitable, and non-substitutable.
A client wants to expand internationally and asks about transfer pricing. Which primary purpose does an arm's-length transfer price serve?
Answer: Ensuring intercompany transactions are priced as if between unrelated third parties for tax compliance
Arm's-length pricing mirrors what unrelated parties would charge, satisfying tax authority requirements and preventing artificial income shifting between jurisdictions.
A business advisor is helping a client prepare for a bank loan. The lender requires a debt service coverage ratio (DSCR) of at least 1.25. If annual net operating income is $180,000 and total annual debt service is $160,000, what is the DSCR and will the loan likely be approved?
Answer: DSCR = 1.125; loan will be denied
DSCR = $180,000 / $160,000 = 1.125, which is below the required 1.25 threshold, so the loan would likely be denied.
When advising on a merger, which analytical tool best identifies whether the combined entity will achieve synergies by comparing pre- and post-merger cost structures?
Answer: Horizontal integration analysis with pro forma financial statements
Pro forma financial statements for the combined entity allow direct comparison of projected cost structures, quantifying expected synergies from the horizontal integration.